Tax Credits, Penalties And Age Rating: Parsing The GOP Health Bill

For years, Republicans in Congress have promised to repeal and replace the Affordable Care Act, claiming that its requirement for nearly everyone to buy insurance or pay a fine is burdensome and costly, and it doesn't give people enough flexibility to get the coverage they need.

Now that they're in charge, the bill they've released as an alternative (the American Health Care Act) would effectively eliminate the requirement to buy coverage, and it could open up more health care choices, but it's under fire because it may cause millions of people to lose their coverage. According to the nonpartisan Congressional Budget Office, up to 24 million more people could be without insurance by 2026 if it passes.

So what are the differences between the ACA and the GOP alternative, and what does it all mean to you and your health care? We put some of your questions from our Twitter chat (#ACAchat) earlier this month to Alison Kodjak, NPR health policy correspondent, and Julie Rovner, chief Washington correspondent for Kaiser Health News.

Many questions came in about the elimination of the requirement to buy insurance, known unflatteringly as "the mandate," and how the lack of one might impact the health insurance market.

Is the mandate in the GOP bill? It won't work if people only sign up when they are sick.

Kodjak: The mandate is technically still written into the law, but since no one will enforce it under this new bill, it's unlikely to have any impact. In fact, the Internal Revenue Service has already issued some guidance that suggests it may not enforce the mandate very actively even now, before this bill becomes law. The result? People who think insurance is too expensive and don't expect to need it are unlikely to sign up for a health plan.

Rovner: It's true that GOP the bill technically preserves the mandate, but it eliminates the penalties. Instead, the bill would require those with a lapse in insurance of more than 63 days to pay an insurance premium that's 30 percent higher for one year. Analysts say that could actually serve as a disincentive for healthy people to purchase insurance if they've had a break.

Can someone wait until they are sick to buy insurance, knowing that they would have to pay a 30 percent fine?

Rovner: Not exactly. There will still be standardized open enrollment periods once a year, and you will only be able to buy insurance outside of those windows if you have a life change, like moving or losing a job. But if you're willing to wait as long as 11 months, then yes, you can wait and buy insurance after you get sick.

Kodjak: It's not without risk. The Department of Health and Human Services has already proposed regulations that would reduce that open enrollment period to six weeks from the current three months. So a patient may incur some health care costs while awaiting the open enrollment, and then face the 30 percent penalty when they do buy a health plan. However, if the individual has a health issue where treatment can wait, then they certainly can enroll at the correct time and then seek medical care.

We also got a lot of questions about the new tax credits to help people buy insurance that are in the GOP bill, and how different they would be from the structure of purchasing help in the ACA.

Explain the difference between tax credits and subsidies, and will tax credits will be distributed quarterly or at the end of the year?

Kodjak: Both the ACA and the AHCA use advanceable, refundable tax credits. That means the government each month sends the tax credit amount to your insurance company.

We refer to the Obamacare financial assistance as a "subsidy" in part because the amount fluctuates and is based on your income – the idea is to limit your health costs to a specific percentage of your income. In addition, under the ACA, there are payments to insurers to help cover the co-payments and deductibles of lower-income people.

Rovner: The tax credits differ in how large they are and how they are calculated. The ACA tax credits are based on income and how much insurance costs in a given area. The GOP credits, by contrast, are based primarily on age and do not vary according to the cost of insurance in an area, so in low-cost parts of the country they will go farther than in very high-cost areas.

In addition, the ACA has a series of subsidies that help those with low incomes (under 250 percent of poverty; about $50,000 for a family of three) pay their deductibles and other out-of-pocket expenses in addition to the tax credits to help pay for premiums.

Kodjak: The basis for age-based tax credits is that people who are younger tend to have fewer health costs, so insurance policies are likely to be lower priced for them than for older people.

Republicans prefer the fixed credits in part because they are cheaper, and more predictable, than the income-based credits under the Affordable Care Act. That's because those ACA credits rise as premiums rise, giving insurers little incentive to keep their premiums low. Republicans hope that by restraining the government's financial help to patients, insurance companies will offer cheaper policies that better match the cost of the tax credits.

Rovner: Younger adults, on average, need less health care than older adults. The ACA limited the differential in premiums for older adults to three times more than the amount charged to younger adults. The GOP bill would change that so older adults could be charged five times more. The change would make insurance less expensive for younger people, likely enticing more of them to enroll, and lowering premiums for all, at least marginally, according to the Congressional Budget Office. But it would dramatically increase premiums for older adults, particularly those aged 55-64, just under the age to qualify for Medicare.

Which brings us to this question, which represents several we received about how the ACHA appears to disproportionately impact people ages 55-64.

Do I face a penalty for waiting to buy health insurance until I'm eligible for Medicare in three years? I'm concerned that I'll be stuck with an expensive plan.

Kodjak: No 30 percent penalty if you wait for Medicare, but remember, if you get sick while you're waiting, you could be in financial trouble.

Rovner: That is correct. Also, remember, if you fail to sign up for Medicare when you first become eligible at age 65, you would also pay a premium penalty. It's 10 percent per year, forever.

Got more questions? We'll keep answering them as the GOP bill moves through Congress. Send them to us via Twitter at #ACAchat.

Copyright 2018 NPR. To see more, visit http://www.npr.org/.

STEVE INSKEEP, HOST:

Today in Your Health, we answer some of your questions about the Republican plan to replace the Affordable Care Act. You've sent us many questions. And we've lined some of them up with NPR's health policy correspondent, Alison Kodjak, as well as Julie Rovner of our partner Kaiser Health News.

Good morning to you both.

JULIE ROVNER, BYLINE: Good morning.

ALISON KODJAK, BYLINE: Good morning, Steve.

INSKEEP: They're in our studios. We're going to get pretty wonky, pretty detailed. But let's start with the basics. Orient me on what the basic Republican plan is.

KODJAK: Well, Steve, the biggest change in this plan is that it gets rid of what's called the individual mandate, which is the requirement that everybody have health insurance.

INSKEEP: OK.

KODJAK: And it also gets rid of the Affordable Care Act's income-based tax credits and subsidies. It replaces those with a fixed tax credit, a single amount that everybody whose income is under $75,000 gets.

INSKEEP: Based on their age, right?

KODJAK: Based on their age. So it go up as you get older. And you use that tax credit to buy a health insurance plan on the open market.

INSKEEP: So you change these rules - some people get a little bit more; some people get less; some people feel they're getting an awful lot less, Julie Rovner.

ROVNER: That's right. And the other big thing that this bill does is it eliminates the expansion of the Medicaid program for low-income people - gradually, but it does make it go away. And of course, it repeals almost all the taxes that were raised in the Affordable Care Act to pay for the benefits since it's going to have fewer benefits.

INSKEEP: OK. So every single provision of this affects somebody's bottom line - personal bottom line - millions of people. And we're getting lots of questions about it. The first one that we're going to listen to is from Nkonye Adaikpoh in San Antonio, Texas.

(SOUNDBITE OF ARCHIVED RECORDING)

NKONYE ADAIKPOH: What provisions are there for those who experience financial hardships - such as a job loss, death in the family, divorce - and can't buy insurance?

INSKEEP: OK. If you're broke, what do you do, Alison Kodjak?

KODJAK: Well, there's no specific provision to help people if they don't qualify for Medicaid. No matter what your circumstances, as we said before, you get this age-based tax credit. The idea is that Republicans eventually will get rid of enough regulation that lower-cost, sort of stripped-down health insurance policies will be available for people who can't really afford more comprehensive coverage.

INSKEEP: That's the hope. But the reality right now, according to the Congressional Budget Office, is some people just realistically aren't going to be able to use this subsidy to pay for insurance. Is that right?

KODJAK: Exactly. As the market stands now, there's really not a lot of insurance policies, or any, available for, like, the $2,000 a year is the tax credit for people under the age of 30.

INSKEEP: OK. Let's go on to another question here. Mollie Gelburd asks the question from Washington, D.C., and wants to know this.

ROVNER: Well, I think there are two main reasons. One is simplicity. Right now, the tax credits are income-based, and so you have to verify your income. And you have to - they use last year's tax returns. It's very complicated, and sometimes people end up paying more at the end of the year.

INSKEEP: OK.

ROVNER: The other thing about age-based tax credits is the hope is that it will get more younger, healthier people into the individual market. That's what the Affordable Care Act was trying to remake. There have not been enough of those people. And that's one of the reasons that costs have gone up. But...

INSKEEP: Let me just make sure I understand this. So if I'm 25 or 30, I got out of college. I got a decent job as opposed to a poor-paying or low-paying job, I might have no subsidy now. But I might have a couple thousand dollars under this plan, is that right?

ROVNER: That's exactly correct. It will definitely make it easier for younger people to afford health insurance. But the trade-off - as you mentioned, there's lots of winners and losers - is that older people, people who are not quite old enough for Medicare but between about age 50 and 64, will pay a lot more. That's the now-famous Congressional Budget Office estimate, that a 64-year-old will go from paying $1,700 a year now to $14,000 if this were to become law.

INSKEEP: And these are a lot of Republican voters. And this is the provision that's causing a lot of Republicans to say - wait a minute - not a final plan yet. We'll try to work on that if we can.

KODJAK: Exactly. And that's one of the things that has happened over the weekend. Republicans in Congress, especially Paul Ryan, have said they're going to look at that part of it because it's gotten so much pushback that they're trying to see what else they can do, possibly increase the tax credit amount for those older people who don't get employer-based health coverage.

INSKEEP: Although that means it would cost more. And there are conservative Republicans already concerned about how much this costs, right?

KODJAK: Yes. And that's why this is thorny (laughter).

INSKEEP: OK. Well, let's get another question on the table here from Leslie Shatz (ph) of Deer Park, N.Y.

(SOUNDBITE OF ARCHIVED RECORDING)

LESLIE SHATZ: Could you please explain the difference between tax credits and subsidies? Will there be quarterly tax credits or just year-end?

INSKEEP: What's the difference, Julie - tax credit, subsidy?

ROVNER: Well, actually, this is a common misunderstanding. The main way that the Affordable Care Act helps people pay their premiums is a tax credit. It's just everybody refers to it as a subsidy. So basically, the...

INSKEEP: Which effectively is - they're just not necessarily writing me a check.

ROVNER: Right. We're swapping one tax credit for another tax credit. And what makes you not realize these are tax credits is that neither one of them comes at the end of the year when you file your taxes. They are both what's called advanceable, which means you can get them in advance to pay your monthly premiums, and refundable, which means that even if you don't earn enough to owe taxes, you are entitled to that tax credit. Those two things would remain the same. It's just, as we pointed out, the amount of the credits would change, and the way you get the credits would change.

INSKEEP: OK, not technically a subsidy. Are there are also subsidies that are part of this plan - actual subsidies, payments to people?

ROVNER: There aren't. But there are actual subsidies (laughter) in the Affordable Care Act. Those are for people who earn less than two and a half times poverty. And that's to help them pay not their premiums but to pay their out-of-pocket spending, their deductibles and co-insurance.

INSKEEP: OK. One quick last question from Anne Paulson of Los Altos, Calif.

(SOUNDBITE OF ARCHIVED RECORDING)

ANNE PAULSON: If I were 62 and I decided health insurance was too expensive and I'd wait for Medicare, I wouldn't get a penalty - right?

INSKEEP: Would you, Alison?

KODJAK: No, you wouldn't actually, unless you got sick, at which point your penalty would be that you'd have to pay for your health care out of your own pocket because you wouldn't have any insurance.

INSKEEP: Or pay to get health insurance back - right? - because they can't deny you with a preexisting condition.

KODJAK: No, they can't deny you with a preexisting condition. The risk is that you would have to wait for the open enrollment period. So there would be this period of time, perhaps, between when you found out you were ill and when you could buy an insurance policy to pay for that.

INSKEEP: That's feeling like casino gambling.

KODJAK: A little bit (laughter).

INSKEEP: OK.

ROVNER: And there's a 30 percent premium increase for that year.

INSKEEP: OK. Well, thanks very much, guys, for answering some of the many, many, many questions about the Republican replacement to the Affordable Care Act.

Julie Rovner of Kaiser Health News, good to see you again.

ROVNER: Thank you.

INSKEEP: And NPR's Alison Kodjak, thanks to you for coming by.

KODJAK: Thanks, Steve.

INSKEEP: OK. We're going to be answering more questions as this debate goes on. You can tweet us @morningedition using the hashtag #ACAchat. Transcript provided by NPR, Copyright NPR.